Home Prices in 20 U.S. Cities Drop Most in More Than Year on Foreclosures

By Alex Kowalski and Shobhana Chandra -
Apr 26, 2011

Residential real-estate prices
dropped in the 12 months to February by the most in more than a
year, putting the market on the verge of eclipsing the nadir
reached during the U.S. recession.

The S&P/Case-Shiller index of property values in 20 cities
fell 3.3 percent from February 2010, the biggest year-over-year
decline since November 2009, the group said today in New York.
At 139.27, the gauge was just shy of the six-year low of 139.26
in April 2009, two months before the economic slump ended.

Values will probably keep falling as foreclosures swell the
supply of unsold homes, which means the construction industry
will take time to recover. Another report showed consumer
confidence climbed more than forecast this month, making it more
likely that spending will keep growing as the economic expansion
creates jobs and stock prices advance.

“Housing will continue to lag the recovery until
foreclosures abate,” said Sal Guatieri, a senior economist at
BMO Capital Markets Inc. in Toronto. At the same time, “the
negative wealth effect from home price declines seems to be more
than offset by stock market gains,” and “the economy is moving
in the right direction.”

Stocks rose as earnings at companies from United Parcel
Service Inc. to 3M Co. topped analysts’ estimates. The Standard
& Poor’s 500 Index increased 0.9 percent to 1,347.24 at the 4
p.m. close in New York, the highest level since June 17, 2008.
Treasuries also climbed, sending the yield on the benchmark 10-
year note down to 3.31 percent from 3.37 percent late yesterday.

Projected Drop

The drop in home prices matched the median forecast of 26
economists surveyed by Bloomberg News. Estimates ranged from
declines of 2.5 percent to 4 percent.

The Conference Board’s consumer confidence index rose to
65.4 from a revised 63.8 reading in March, figures from the New
York-based private research group showed. The median forecast of
economists surveyed by Bloomberg News projected it would advance
to 64.5.

Six straight months of job growth along with joblessness at
a two-year low in March are helping sustain consumer purchases,
which account for about 70 percent of the economy. At the same
time, bigger gains in sentiment may be difficult to achieve as
households spend more for food and gasoline, which is at the
highest level in almost three years.

“Confidence is picking up on the back of an improving
labor market and rising stock prices, which are offsetting
higher gasoline costs,” said BMO’s Guatieri. “Consumers will
have both the confidence and the income to keep spending.”

Eighth Decrease

Home prices fell 0.2 percent in February from the prior
month after adjusting for seasonal variations, an eighth
consecutive decrease, the report from Case-Shiller showed.
Fourteen of the 20 cities posted price declines in February from
the previous month, led by Seattle and Miami.

The year-over-year gauge provides better indications of
trends in prices, the group has said. The panel includes Karl Case and Robert Shiller, the economists who created the index.

The Case-Shiller measure is based on a three-month average,
which means the February data was influenced by transactions in
January and December.

All but one of the 20 cities in the index showed a year-
over-year decline, led by an 8.4 percent slump in Phoenix and an
8.3 percent decrease in Minneapolis. The exception was
Washington, where values climbed 2.7 percent. Prices in 10
markets dropped to fresh lows in February from their 2006, 2007
peaks. Those areas include Atlanta, Chicago, Las Vegas, Miami
and New York.

Little Good News

“There is very little, if any, good news about housing,”
David Blitzer, chairman of the Case-Shiller index committee at
S&P, said in a statement. “The 20-city composite is within a
hair’s breadth of a double-dip.”

KB Home (KBH), the Los Angeles-based homebuilder that targets
first-time buyers, this month reported a bigger-than-expected
loss for the quarter ended Feb. 28 as orders plunged.

“Today’s consumers remain very cautious, whether they have
concerns about home prices falling further, their job status,
their ability to qualify for a loan, or general confidence in
the economy,” President and Chief Executive Officer Jeffrey Mezger said during a conference call with analysts on April 5.
“A sustained, broad-based housing recovery will not occur until
we start to experience material job creation.”

Treasury Secretary Timothy F. Geithner today said it’s
“going to take a long time” to fix the housing market because
private sources of financing need to take a bigger part,
replacing government-sponsored agencies Fannie Mae and Freddie
Mac.

“We’re just at the beginning of trying to figure out how
to fix that mess,” Geithner said in remarks at the Council on
Foreign Relations in New York. “You have to put in place a
housing-finance system that will allow private capital to carry
the dominant role of financing and mortgage for people.”